The Government's plan to introduce a "pasty tax" has created "a quagmire of confusion and worry" for businesses, according to a Conservative MP who sits on the Commons committee which scrutinises the Budget.

Mark Garnier, a member of the Treasury Select Committee, said the plan to levy 20% VAT on hot foods including pasties has dragged "innocent bystanders" into a move designed to stop supermarkets unfairly undercutting fast-food outlets.

He also raised the idea of exempting all fast food from VAT as a way of levelling the playing field and boosting consumer spending.

"What started out as a perfectly reasonable attempt to iron out a few VAT wrinkles in the fast food industry has turned into a quagmire of confusion and worry," he said.

"The fact that hugely resourced supermarkets can undercut high street sole traders as a result of VAT inequalities is simply wrong. But to drag innocent bystanders into this row is also wrong.

"These anomalies need to be sorted out. One, as yet unspoken, alternative is to remove VAT on all fast food thus removing the imbalances and helping the consumer at the same time."

The MP for the Wyre Forest constituency in Worcestershire visited the WC Rowe bakery in Penryn, near Falmouth, with local Conservative MP Sarah Newton while in the county on holiday.

All six Cornish MPs, Lib Dems Stephen Gilbert, Dan Rogerson and Andrew George, plus Tories Mrs Newton, George Eustice and Sheryll Murray, have questioned the plan to charge the standard rate of VAT from October.

The Chancellor said in last month's Budget that he wants to create a level playing field by imposing the tax on bakeries and supermarkets selling hot food to bring them in line with fast-food outlets which already pay VAT.

Mrs Newton said: "It is vitally important that the pasty does not get caught in the cross-fire of trying to sort out VAT anomalies between high street takeaways and supermarkets. The proposals are currently being consulted upon and I will continue to make sure a common sense solution is found."

Mr Gilbert, speaking at a Pasty Tax Summit in Truro yesterday, floated the idea of a coalition of Labour MPs and other disgruntled Government MPs - Lib Dem and Conservative - across the country opposed to George Osborne's Budget plan to make pasties and other hot baked foods subject to VAT.

Speaking at the Pasty Tax Summit, which brought together pasty producers and politicians, the MP for Newquay and St Austell said that there was opposition to the plan from across the country, from the Cornish countryside to "meat and potato pie" constituencies in the north of England.